Emerging Economies In Globalising World †Free Samples for Students

Question: Discuss about the Emerging Economies In Globalising World. Answer: Introduction The economic performance of the different developing countries over the past few decades reflects a wide range of disparity among these countries and also in comparison to the developed nations. The economic growth in some of the developing countries over a period of a few years has been remarkable. This gives rise to the concept of emerging market economies and provides a scope to study the transition of these countries over the past decades. The reason why some of the developing countries emerged rapidly while others were left behind can be manifold. The disparity in the economic performance of the various developing countries can be attributed to a number of economic parameters like the national income, the per capita income which also accounts for the population level, performance of the share market, openness to international trade and foreign investment, etc. While many developing countries have registered high economic growth rates over the past decades, the growth rate of dev eloping countries have been relatively low during the same period of time. However, the records of high growth rates for the developing countries have been temporary ranging for around a decade. The economic growth in most of these countries has been unsustainable. The emerging market economies registered the rapid economic growth mostly during the decades of 1990 and 2000 mainly due to the increased global supply of funds. Most of the developing nations opened up to the international market in terms of the output and financial markets during the early 1990s. Most of the developing countries, however, have not shown any sign of high paced growth they have been in the transition phase since the past few decades and will continue to be in that phase for years to come. The emerging market economies that registered the most notable economic performance over the two decades concerned are Brazil, Russia, India and China, popularly referred to as BRIC. Though these countries have not expe rienced any major parametric change in common, their economic performance with respect to a number of factors has been notably high and has surpassed most of their developed counterparts. However, since the income levels in these countries are widely different, they cannot be compared in terms of all the economic parameters (Mankiw, 2012). When a developing country starts from a low level, the growth rate would naturally be prominent over a period of time. Since, developed countries have already attained that level; the growth rate seems comparatively sluggish (Sharma, 2012). Economic Growth And Development The economic growth of a country is determined by a number of factors. The determinants of economic growth are the same for both developed and developing countries, but the structure and transformations of these economic parameters are different for developing and developed nations. Accordingly, the difference in economic growth is generated. The most important factor is that developed and developing nations start off with different endowment levels, that is, different levels of initial allocations (Blanchard and Johnson, 2012). This is what affects their growth parameters over time. Due to different initial levels of output and income, the economic growth rate of developed and developing countries are different with developing countries registering a higher growth rate. This is mainly because when a developing country starts at a low initial level, the rate of growth in the transition phase is much higher than the rate of growth of a developed country that has already attained the s ame level of economic output. During the period considered, the major developing economies in the world were going through a wide variety of transformations. Major economic reforms were undertaken in most of these economies (Dornbusch, Fischer and Startz, 2013). The government policies had been modified to suit the immediate growth requirements of such countries and accordingly the policies were implemented. Under the influence of the major economic changes, the economic growth rate of these countries was largely paced up. The decade of 1990 and that of 2000 were known for major global economic changes that took place. These triggered the rapid growth rate of these economies in the coming decades. However, for most of the developing economies, the growth rate was not sustained for a long period of time. The two decades witnessed large scale economic and social changes in the low and middle income countries which transformed a much developed economic structure as compared to the earl ier decades. Increased volume of exports and availability of natural resources are two major factors that have influenced the growth rates of developing economies over this period. Moreover, due to better and improved health and medical facilities, the life expectancy in these countries also improved which largely contributes to economic growth by improving the productivity and efficiency of the labour force in the economy (Mankiw, 2012). When these countries opened up to the global economy in the early 1990s, there was increased investment from foreign investors who perceived potential returns in these countries. Increased investment augmented economic growth to a large extent by improving the production conditions. Again, due to increased job opportunities and eased mobility across countries, the unemployment rate also decreased over the year in most of these countries. Multinational organizations established their counterparts in some developing countries and hence generated larg e scale employment. A few countries like Malaysia and Thailand would have transformed from middle income to high income economies during this course of time. However, due to unstable political, economic and financial conditions, they soon experienced a financial meltdown in the years 1997 98. Since then they have been unable to catch up their earlier growth levels. In terms of per capita income, the developing countries had registered a very low level till before the 1990s. Thereafter, as a consequence of the rapid economic growth and progress, the per capita income had risen considerably relative to that of the developed countries. Hence, there has been an improvement in the general standard of living in these economies as compared to their previous economic situation. This is mainly due to a number of different policies adopted by the governments of these countries to control the population. The population control policies have mainly contributed to the increase in the per capita income of these countries (Samuelson and Nordhaus, 2009). For example, in China, the one-child policy measure imposed by the government has over the years controlled the population to a considerable extent. The rapid decline in population has pushed up the per capita income and hence the standard of living in these countries over the two decades. However, post 2011, the difference between the per capita incomes of the developing and developed nations again widened back to the earlier levels. Thus, the rapid growth did not sustain for most of the developing economies (Blanchard and Johnson, 2013). Globalization In Emerging Economies Globalization is an increasingly important issue that has large scale impact on the world economy. It is defined as the process of amalgamation of different nations across the globe in terms of ideas, culture, products and services, perspectives and political, social and economic structures. Over time, it has created and increased the already created interdependence among the developed and developing countries across the world through the medium of social, political and economic parameters. Infrastructural advancement and advanced means of transportation and communications among different countries has resulted due to globalization. Many underdeveloped countries with potential growth prospects have absorbed the technological improvements from their developed counterparts and they have experienced rapid growth based on this (Krugman, Obstfeld and Melitz, 2012). Globalization, especially for the developing nations has not only facilitated mobility of products and services but also the mobility of people across nations, thereby improving global productivity and also increasing the share of developing countries in the global gross domestic product. It has generated the flow of information across nations which has led to the improvement of production technologies and expanded the efficiency of developing economies (Krugman and Wells, 2012). Over the two decades, most of the developing economies in the world have experienced large scale globalization in terms of the output as well as the financial markets. For example, Taiwan emerged in the global economy in the year 1991 followed by India which opened up to the global economy in the year 1992 after the economic reforms of the country. In South Korea, globalization was pronounced in the year 1993 and in 1995 for Russia. Similarly, all the major emerging market economies characterized as developing economies began their international participation around this period. Foreign investment in these countries over this per iod of time made a remarkable progress and increased from as low as 1 percent to nearly 8 percent of the global stock market. However, the effect of globalization did not retain for a very long period of time for all the developing nations across the world. During the period 1994 to 2002, there came about an economic crisis from Mexico to Turkey and hence the stock market of the developing world shrank 50 percent to 4 percent of the global total. China was the only exception because instead of shrinking it expanded to 4.5 percent of the global total. This is mainly because the growth rate in China during this period of time has been almost the highest and it has sustained for a really long period of time. Hence, ultimately, the issue of emerging markets was basically applicable to China only. Though the other emerging economies have experienced large scale transformations and expansion compared to their previous situation, the progress of China was the most pronounced during the two decades considered. However, in 2003 again, emerging market economies were seen to rise as a group as a consequence of the global boom that occurred. Their share of global GDP rose to 34 percent from 20 percent during this period of time. Their stock market share also rose to a considerable extent. Again, in 2008, large scale losses had been inflicted upon the global economy due to the global financial crisis. Though the developing countries had recovered from the crisis in due time, they have not been able to attain their previous economic conditions. More funds are required to flow into the developing economies for their adequate growth and progress. Moreover, the funds should be channelized optimally so as to augment the economic growth by improving the general efficiency level of the developing countries. Globalization has had manifold effects on individual economies and the world economy on the whole. It has affected economic growth via channels of trade in goods and services, foreign investment, labour migration, information flows and technological integration. It has been effective mainly because most of the developing nations have abundant natural resources and cheap labour and other factors of production. This has led to increased economic activity in the developing countries generated in the developed countries over the years. Over time, globalization has also generated economies of scale for different nations and hence enhanced the growth prospective. Developing countries have mostly benefited from globalization mainly due to increased efficiency and productivity along with information flows which helps improve the production technology. When globalization took place, multinational organizations have expanded their business in various developing countries thus generating labour demand in those countries. The domestic producers have also been able to expand their capacity with foreign investment and hence they also acquired increased labour. Under t he availability of surplus labour in most of these countries, the unemployment rates have reduced. Thus, globalization has played a major role in changing the economic conditions of the developing countries over the years (Caves, Frankel and Jones, 2007). Bric The emergence of the developing nations in the global economy has been remarkable in the decades of 1990 and 2000. The main drivers of this progress were the developing countries Brazil, Russia, India and China popularly referred to as BRIC. These countries were said to be developing at a very fast pace during the past two decades, so much so that they almost caught up and in some cases even surpassed their developed counterparts. Though these economies do not share any common macroeconomic situation, yet individually, the performance of these countries was notable during the decades of rapid economic growth. Brazil The decade of 1990 is referred to as the reform decade for the economy of Brazil. This is mainly because during this period, the economy underwent a number of changes in terms of economic and administrative policies that shaped the economy differently in the years to follow. There was large scale foreign capital inflow into Brazil at the beginning of the decade which was accompanied by major technological changes that transformed the production parameters of the economy. However, the macroeconomic situation in the country was unstable during this period of time which hindered the absolute participation of the country in the international movements. The path of economic growth seemed to have been marked for Brazil according to the success indicators for the other emerging economies. In an attempt to control inflation, the domestic economic situation was further worsened. However, in the latter half of the decade, stabilization was focused on and duly achieved in terms of prices. There was notably increased trade openness in the country in terms of merchandise and capital which allowed for the integration with the other developed nations in the world. The access to international capital was facilitated by the various reforms undertaken. The decade of 1990 was marked as a turning point in the economic history of Brazil. The price stabilization process facilitated positive economic transformations to a great extent and it was sustained for over 6 years. The channels via which price stabilization augmented the economic performance of the country are the creation of wealth effect for both consumers and producers, establishment of a stable political situation and generating confidence in foreign investors. Thus during the decades of 1990 and 2000, the Brazilian economy, having undergone rapid economic reforms, registered high growth rates. Once a stable economic situation was achieved, the economic growth slowed down in the years to follow. Russia During the 1990s, the transformation of the Russian economy from a central planning system to a market-based economy was brought about through the emphasis on economic restructuring and macroeconomic stabilization. For economic restructuring, the establishment of legal, commercial and institutional organizations like banks, commercial and legal codes, private property, etc. was necessary such that the economy could perform efficiently. On the other hand, for macroeconomic stabilization, implementation of appropriate fiscal and monetary policies along with the stabilization of prices and exchange rates were emphasized. The economy was opened to the international forum and this facilitated the economic growth of the country in the following years. As a measure of macroeconomic stabilization, the government budget deficit was aimed to be reduced such that as a long-term effect the inflation rate could be controlled. During the years of 1992 and 1993, money supply and credit was widely e xpanded by the government which led to inflation and depreciation of the exchange rate. This monetary policy was soon curbed which stabilized prices again. The increase in money supply was a result of the large scale credit inflow from foreign investors. Thus the Russian economy during the period post 1990 had experienced rapid economic growth. However, post the two decades, the output market and the stock market of Russia have been known to be one of the weakest in the world. Thus the economic condition of Russia could not be sustained for long. India The decade of 1990 witnessed large scale economic transformation of the Indian economy. Economic reforms covering a wide variety of macroeconomic issues were undertaken in India in the year 1991. The economic reforms of India were mainly characterized by liberalization, privatization and globalization. Besides undertaking numerous macroeconomic transformation policies, the country completely opened up to the international economy in terms of the output market as well as the financial market. In the following years, the country developed rapidly in terms of foreign trade and foreign direct investment. Trade barriers had been removed as a reform policy by the government which facilitated the increased volumes of trade across the world with the Indian economy at the forefront. Thus there was rapid economic growth in the country. Foreign direct investment has been increasingly flowing into the country ever since. This is because the country is a potential and business hub for investment and business. Thus the output and income in the economy was augmented which led to rapid economic growth. The reforms had mainly been undertaken to correct the unstable macroeconomic situation that the country has been subject to in the preceding years. In the attempt, the country achieved major economic goals and registered high economic growth over the period. China Of all the major emerging market economies, the economic performance of China over the decades of 1990 and 2000 was the most remarkable. In fact, the term emerging market economies was essentially applicable to only China after a point of time. Throughout the two decades, China recorded high economic growth rates and the country has been progressing rapidly. It has been through large scale economic transitions through the implementation of different policies over the years. The progress of the Chinese economy was far better compared to the other developing economies at that point. Having started from a low initial level of resources, the economy of China was the fastest growing economy over a considerable period of time surpassing the major economies in the world. At one point of time, China was almost said to be overtaking the United States as the largest economy in the world. The growth rate of china has slowed down post 2009 and the record has been low ever since. Even during the financial meltdown when most of the economies were shrinking in terms of the stock market, China experienced an expansion. However, the growth of the Chinese economy has been sluggish in the recent years. Though China has adopted various population control policies, the population of the country is too large to accommodate the benefits of economic growth. Moreover, the Chinese population is aging and hence the productivity and efficiency of the economy is being hampered. The surplus labour in the economy has already been used up and hence there is little scope for further economic growth. Conclusion The developing countries of the world have over the past few decades experienced rapid economic growth due to a number of reasons. Of the developing countries some have shown remarkable performance in terms of economic growth and development whereas the growth in other economies has been negligible. The main drivers of the growing market economies have been Brazil, Russia, India and China, the economic performances of which have been most noteworthy. Though these countries do not have any macroeconomic situation in common, the economic growth registered was same paced. Each country has grown and developed in a different way given the completely different initial economic situations. Even though the rapid growth process in these economies could not be sustained, the economies are still growing. No comparison should be drawn between the developing and developed economies since they are measured on completely different scales and marking one with respect to the other might underestimate the economic performance of the developing nations (Sharma, 2012). References Blanchard, O. and Johnson, D. (2012). Macroeconomics. 6th ed. New York: Pearson Education. Dornsbusch, R. Fischer, S. and Startz, R. (2013). Macroeconomics. 12th ed. New York: McGraw Hill Education. Mankiw, N. (2012). Macroeconomics. 8th ed. New York: Worth Publishers. Krugman, P. and Wells, R. (2012). Macroeconomics. 3rd ed. New York: Worth Publishers. Samuelson, P. and Nordhaus, W. (2009). Macroeconomics. 19th edn. New York: McGraw Hill Education. Krugman, P., Obstfeld, M. and Melitz, M. (2012). International Economics: Theory and Policy. 9th edn. New York: Pearson Education. Caves, R., Frankel, J. and Jones, R. (2007). World Trade and Payments: An Introduction. 10th edn. New York: Pearson Education. Sharma, R. (2012). Broken BRICs: Why the Rest Stopped Rising. JSTOR, Vol 91 (6), pp. 2 7.